Hard times at BT

BT’s full-year results today have been dominated by confirmation that a further 15,000 jobs are to go, after a similar amount were cut during 2008/09.

The City will not be surprised by these cuts given BT’s poor finances and many problems. Indeed, the share price has recently been at its lowest since the initial flotation in 1984.

The adjusted figures for 2008/09 – though uninspiring – could have been worse, given the state of the economy.

On the back of 3% revenue growth, underlying EBITDA (Earnings before Interest, Tax, Depreciation and Amortization) – a key City metric – remains within the £5 billion to £6 billion band that has been the case for years. Underlying earnings per share were down by 19% compared with 2007/08.

However, BT’s adjusted figures continue to be overshadowed by two very unwelcome legacy issues.

First, BT’s Global division has been forced to make enormous provisions for some poor contracts, most notably within the much-criticized NHS IT programme. Moreover, this division is also facing restructuring costs of a total £700 million over three years.

Secondly, like British Airways, BT’s pension deficit remains an eternal problem. It has now agreed to contribute over £500 million a year for the next three years to top up its pension fund.

In addition, confirmation of a 59% dividend cut and net debt of over £10 billion is bound to unsettle investors.

More generally, unlike its EU counterparts – Deutsche Telekom, France Telecom and Telefonica – BT does not benefit from rising returns from a mobile telecoms business; its Cellnet/O2 operation was demerged some years ago.

In summary, challenging times for BT. And, given the high hopes when it became the world’s first mass privatization in 1984, BT’s plight is very disappointing for UK plc.